New requirements for third-party MERS audits are one of among the many inordinate compliance demands that could be easily overlooked, but they will soon no longer be something that can be ignored, according to executives at Quality Mortgage Services.
“Starting in 2012, they are going to have to have an outside auditor,” said Tommy A. Duncan, president of Quality Mortgage Services, in an interview with this publication.
The topic could be a hot one at the Mortgage Bankers Association's servicing conference in February if market participants can look up from it long enough to go, he said.
February will mark the first time that auditors will be dealing with the first full month of data (from January), he noted.
“In February, when January closes, we'll probably see a mad rush,” Duncan said. “People aren't doing much about it, and the timeline is getting shorter.”
The requirement may be overlooked in part because the third-party audit is a requirement from a relatively “small piece” of a consent order involving major residential mortgage servicers and mortgage service providers, there has been “not a lot of discussion on it,” Duncan said. As a result, it is starting to appear that some have left it as well as other MERS compliance requirements in some cases on the back burner too long to avoid implementation delays, he said. To get a sense of the scope of the compliance issue, consider that there are about 31 million MERS-registered loans.
He said the delays are not for a lack of trying on QMS's part, noting that the company for the past few months has been trying to alert quality control managers and set clients up with automation that will streamline the process. It also spent the last several months enhancing its software to support reviews that will provide the reporting required. For those who wait too long and the only way to address the concern on short notice might be through an excel spreadsheet. He said he believed at press time no other vendors offered specific technology to address the compliance issue the way it is.
“Some…are not using MERS correctly. We have to assist them in their training so that we can perform our review,” he said, noting that those who are more in line with MERS requirements are more likely to meet the compliance deadline first.
Duncan said he thinks the timeline will be adjusted to allow for the implementation challenges, but he warns that market participants should not use that as another excuse to delay as there are multiple MERS compliance requirements that the audit can help with, some of which are already in effect.
Anne Brennan, operations manager of servicing quality control at QMS, noted that MERS requires “general members” to attest starting in the fourth-quarter 2011 period that information reported to MERS is timely and accurate.
In addition, as of the end of February, MERS plans to make another software revision. This will entail updates of some fields and some tightening up of the timeframe, registration process and transfer process, she said.
The audit also should prove helpful in managing risk associated with Fannie Mae requirements added over the past couple years related to MERS: a May 10 and a May 24, 2010 bulletin.
She said QMS as part of its auditing services will review the notes and the security instrument, compare them to the servicing/origination system data and MERS registration to make sure the MERS data is accurate and timely in line with compliance requirements. This will go beyond the boarding of loans to include any time title is assigned or changes hands, such as when there is a loan payoff, foreclosure action, refinance or modification. The audit also will look at whether promissory notes and security instruments are correlated and key documents are correct, Brennan said.
Ultimately Duncan said he believes achieving servicer compliance in this area will be “like running a marathon,” and take some time due to challenges that include trying to estimate staffing.
“We're prepared to estimate volume,” he said, but added,”We don't want to overstaff and then cut back on staff.”
There are “a lot of factors, including how well the servicer utilizes MERS” involved in sizing up workloads and determining whether a servicer can be ready on time to meet deadlines. He said he believes some, but not all, will.
The audits starting next year will need to be done not only monthly, but quarterly and annually as well.
The auditing generally has had a set retail price and has been charged based on “looks” or instances of review via one-on-one contracts, Duncan said.
